Companies in Nigeria to pay Police Trust Fund Levy of 0.005% of net profits

Companies in Nigeria to pay Police Trust Fund Levy of 0.005% of net profits

The Federal Government of Nigeria (FGN), recently made public the Nigeria Police Trust Fund (Establishment) Act, 2019 (The Act), which was signed into law on 24 June 2019 and will be in force for period of six years.

The Act establishes the Nigeria Police Trust Fund (The Fund), which will be applied towards:

  • Funding of training and retraining of personnel of the Nigeria Police Force
  • Procurement of security equipment and machinery for the Nigeria Police Force
  • Procurement of books and instructional materials for Police Colleges
  • Funding of other related facilities for enhancement of the skills and welfare of the Nigeria Police Force

The Act seeks to tax corporate entities to complement the FGN in funding the police force. While the FGN is to contribute 0.5% of the total revenue accruing to the Federation Account into the Fund, companies carrying out business in Nigeria are required to contribute 0.005% of net profits into the Fund. The Fund will also consist of grants and donations from government bodies and non-governmental organisations and returns from its investments.

Also, the Act exempts from tax, any income earned from investments by the Fund and relieves the Fund from any tax legislation applicable to companies or trust funds.

However, the Act is silent on the following issues:

  • Commencement date of the Act (although in the absence of any specific date, this can be implied to be when it was signed into law)
  • Due date for payment of the levy and whether payment is to be made on current or preceding year’s profit
  • Penalties applicable for non-compliance with the provisions of the Act
  • Government agency responsible for ensuring compliance
  • Tax deductibility or otherwise of contributions to the Fund

We expect that the Board established to administer the Fund or FGN will release appropriate guidelines and regulations to clarify the uncertainties and ambiguities in the Act.

While the Act will address the current funding challenges of the Nigeria Police Force, it does appear that funding of the Nigeria police was prioritized over the following possible downsides:

  • Effect of the additional pressure on the earnings of companies doing business in Nigeria
  • Likely increase in overall time and cost of tax compliance in Nigeria
  • Ultimate impact on ease of doing business and investors’ confidence in the country

We will continue to monitor this space and provide updates as they become available. Meanwhile, affected taxpayers are encouraged to arrange their affairs and financial projections in preparation for immediate compliance with this new legislation.

Leave a Reply

Your email address will not be published. Required fields are marked *